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Paramount Printpackaging Ltd IPO Review (Avoid)

Review By MLR Securities Private Ltd on April 21, 2011

Issue Date: 20-25th April
Price Range: INR 32-35
Issue Size: INR 419/458 mn
Mcap: INR 854/935 mn
Market Lot: 150 Shares
IPO Grading: ICRA IPO Grade 2
Public Holding: 49.04% (Post Issue)
BRLM: Onelife Capital Advisors

Paramount Printpackaging Ltd provides various types of packaging solutions consisting mainly of cartons to various clients in sectors like Pharma, Auto Ancillary, FMCG, Electricals and Food etc.

The company is promoted by members of the Sukhadia family. Sukhadia family started its stationary print- ing press in 1941 at Fort in Mumbai and gradually shifted from stationery printing to packaging in 1982.

The present production facility is located at Navi Mumbai and has a production capacity of 20 lakh cartons a day. The objective of the issue is to set up a new production facility at Gujarat for manufacturing of high end duplex board cartons, shippers and printed corrugated box with a production capacity of 15 lakh car- tons a day. The new project is likely to be completed by the end of FY12.

1. The EBITDA margin of the company is healthy at around 22% for 9mthFY11, however the PAT margin was only 3.9% due to high interest expense.
2. The stock is valued at an EV of 6 x annualized 9mthFY11 EBITDA considering the average of the IPO Price Range of INR 32-35.
3. Larger and established players in the packaging industry are trading at an average EV/EBITDA of around 5.5.


Financials (INR mn) FY08 FY09 FY10 9mthFY11
Net Sales 275.5 338.7 465 438.2
EBITDA 26.4 65.2 95.3 96.3
EBITDA Margin (%) 9.6 19.2 20.5 22
Interest 7.6 36.3 38.5 43.7
Depreciation 12.1 28.2 29.3 23.6
Tax 2.1 0.8 10.9 11.9
PAT 4.6 -0.1 16.6 17.2
PAT Margin (%) 1.7 0 3.6 3.9
Net Worth 65.5 125.4 160.6 227.6
Total Liabilities 277.3 247.7 259.4 326.1
Debt Equity Ratio 4.2 2 1.6 1.4
RoE (%) 7.1 -0.1 10.3 7.5

Conclusion / Investment Strategy

Taking into consideration the size of the company's current operations and the threat to earnings dilution as the investment from the issue is on a new project which is in a very initial phase, the IPO Price looks expensive and we recommend avoiding the issue. We believe that the justified EV/EBITDA for the stock is 5 and the IPO Price Range should have been around INR 24.

Reviewer recommends Avoid to the issue.

Review By MLR Securities Private Ltd on April 21, 2011